Fracking under pressure as investors call for risk reporting and reduction

Thursday, 21 February, 2013

Citing concerns over water management, toxic chemicals, greenhouse gas emissions and other community impacts, investors have called on oil and gas companies to disclose critical information about the ways they are managing and measuring the risks associated with hydraulic fracturing (‘fracking’) operations and shale gas transmission. The risks posed by fracking to water and air quality have led to bans and moratoria in the US and around the globe.

Shareholders have filed resolutions with Cabot Oil and Gas, Chevron, Exxon Mobil, EOG Resources, ONEOK, Pioneer Natural Resources, Spectra Energy, Range Resources and Ultra Petroleum, asking these companies to quantifiably measure and reduce environmental and societal impacts. The resolutions were filed by As You Sow, Calvert Investments, Green Century Capital Management, New York City Office of the Comptroller, New York State Common Retirement Fund, The Sisters of St Francis of Philadelphia, Trillium Asset Management and numerous co-filers as part of an investor initiative challenging companies to address climate and sustainability risks.

“Now is the time for companies to measure up - literally,” stated Leslie Samuelrich, Senior Vice President Green Century Capital Management, which filed with EOG Resources and Ultra Petroleum and coordinates a shareholder campaign on fracking with The Investor Environmental Health Network (IEHN). “Transparency is the first step, but oil and gas companies must now implement quantifiable plans to reduce the impact of their operations on the environment.”

“Oil and gas firms face clear environmental and business risks, and general assurances of safety and anecdotes about site-specific actions are not sufficient for investors,” said Richard Liroff, Executive Director of IEHN, a collaborative partnership of investment managers concerned about the financial and public health risks associated with corporate toxic chemicals policies. “Shareholders want to know how companies are systematically tackling environmental risk and community impact concerns and the measurable results of these efforts.”

The majority of the resolutions focus on quantitative risk reporting, urging companies to issue reports including specific data such as the number or percentage of ‘green completions’ and other low-cost emission reduction measures; quantifying the sources and amount of water used for shale energy operations by region; systems to track and manage naturally occurring radioactive materials; the extent to which closed-loop systems for management of drilling residuals are used; the numbers of community complaints or grievances and the portion open or closed. The call for quantitative measurements is consistent with the US Department of Energy’s recommendation that companies “adopt a more visible commitment to using quantitative measures as a means of achieving best practice and demonstrating to the public that there is continuous improvement in reducing the environmental impact of shale gas production”.

Resolutions were filed with Range Resources and natural gas infrastructure and transmission firms ONEOK and Spectra Energy to limit fugitive methane emissions through a program of measurement, mitigation and disclosure. Methane is the primary component of natural gas and - without strong regulations - is released as a by-product of fracking and across the value chain during production, processing, transmission, storage and distribution. The IPCC estimates that methane has 72 times the climate change impact of carbon dioxide over a 20-year period.

“Given the high short-term climate impact of methane emissions, it is now an open question whether natural gas can serve as a bridge fuel to a more sustainable energy future,” said Natasha Lamb, Vice President Shareholder Advocacy & Corporate Engagement at Trillium Asset Management, which filed the methane resolutions. “Companies can and should reduce their emissions using new technologies with positive return on investment.”

“The oil and gas industry must account for its impact on natural resources, the climate and communities,” said Mindy Lubber, director of the Investor Network on Climate Risk (INCR) and President of Ceres, which helped coordinate and track the resolutions. “The environmental risks of fracking have bottom-line impacts, and investors are right to be demanding better performance from oil and gas firms.”

New York City Comptroller John C Liu and the New York City Pension Funds filed the shareowner proposal calling on Exxon Mobil to release data on its efforts to safeguard the public and the environment from its fracking operations.

“Fracking carries significant concerns about poisoned drinking water, toxic chemical leaks and explosions,” Comptroller Liu said. “Exxon Mobil says, ‘Don’t worry, we’ve got it covered’ and asks us to take it at its word. Until the company shows us hard data on what it has done to protect the public and environment, shareowners cannot be confident that the necessary safeguards exist.”

Exxon has repeatedly resisted calls that it provide investors with detailed information on its safety measures. The data that Comptroller Liu and fellow shareowners are requesting includes, but is not limited to: the air emissions from fracking that Exxon has reduced per region per year; the number and kinds of community complaints or grievances and whether they remain open or resolved; the goals and systems used to reduce potentially harmful chemicals in fracturing fluids.

Comptroller Liu and the NYC Pension Funds filed the first-time shareowner proposal jointly with As You Sow, a non-profit environmental advocacy group that has been engaging Exxon on its fracking practices and disclosures on behalf of the Park Foundation since 2010.

“As every top-rate business knows, what gets measured gets managed,” said Danielle Fugere, As You Sow President and Chief Counsel. “Exxon has repeatedly failed to measure the harms its fracking operations cause to air, water and nearby communities, or any progress it is making towards reducing those harms. Exxon shareholders need this information to make sound investment decisions.”

New York State Comptroller Thomas P DiNapoli has had more success, announcing that Cabot Oil and Gas has agreed to publicly disclose its policy and procedures for eliminating or minimising the use of toxic substances in its fracking fluids. As a result, DiNapoli has withdrawn his shareholder proposal submitted for the company’s 2013 proxy statement calling for a report on the use of these substances in Cabot’s shale energy operations.

“Cabot has taken a positive step to reduce risk to shareholders, the environment and the communities in which it operates,” DiNapoli said. “This agreement means that Cabot will publicly release what it is doing to use less toxic substances in its hydraulic fracturing fluids and detail how it is ensuring these efforts are being carried out. Shareholder value is better protected when companies disclose the risks associated with the hydraulic fracturing process.”

DiNapoli, trustee of the $150.1 billion New York State Common Retirement Fund, has filed several resolutions over the past three years with oil and natural gas companies in which the fund owns stock concerning disclosure of legal and regulatory risk, chemicals used in the fracking process, and identification and reduction of potential hazards associated with fracking. His resolutions have been gaining support with shareholders; in 2010, resolutions addressing legal, regulatory and environmental issues went to votes at Cabot and Chesapeake, winning more than 25% of the shares voted. A shareholder vote at Carrizo Oil and Gas in 2011 on environmental impacts and material risks to the company’s finances or operations related to fracking was supported by over 43% of shareholders voting.

DiNapoli has also reached agreements with portfolio companies Hess, Range Resources and SM Energy to disclose potential business and environmental risks linked to their fracking activities.

Thus far in the 2013 proxy season, investors working with Ceres have filed 85 resolutions with 73 companies.

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